All Forum Posts by: Brad S.

I agree with @Bruce Woodruff . Be careful with the advice you get from those who have nothing to lose by giving inexperienced advice, no matter how well intentioned it may be. I have a couple of major RE cycles. I bought and sold at exactly the wrong time in the first one and did the opposite in the second one. I wish I had held more properties in this latest up cycle. Anyway, first thing i'd say is get clear on your goals. Are you going for capital growth, cashflow, combination of both. Do you need to have the cashflow now, or are you planning on growing the cashflow to some level in the future, etc. This may help you focus on location and/or type of property/ies you should focus on. And also learn how to evaluate locations and properties. 

Remember RE is local. If you knew how to evaluate a market, you'd have a clear idea of whether to consider buying in certain markets now or not. In the downturn there were markets that still appreciated and vice versa.  

For longterm rentals, some things to know are, how to calculate affordability of an area (a function of median income, interest rate, median home price), look at migration patterns (are people moving into or out of an area, what are the trends), business climate (are businesses moving to the area or out, what type of industries, income level, etc), rental amounts,  that's all I can think of at the moment.

I wish I would've known more about evaluating markets when I bought my first few properties. 2 of the first rentals I bought, went absolutely no where when I finally sold them about 17 years after I bought them. I sold them for almost exactly what I bought them for, after I had to put some money into them. So, they did not add anything to my net worth, even after all that time. So, don't believe anyone that says just buy anything, anywhere and sit back and wait, and you will get the benefit of since appreciation. 

@Cole Meier-Hollenback 

Cole, one specific case was near me, in the city of San Marino. There was actually a news article I saw about it. Here it is:

https://www.latimes.com/busine...

Point is, real estate is local. :)

Exactly what @Bekah Brown said. There is no true "market as a whole." There are many markets and then submarkets within markets. During the downturn, many areas and properties had gone down in value, but there were areas, in general, which actually appreciated also. That was because of the conditions of that specific market.

There's also "Adverse Possession." Look it up for the details

Originally posted by @Sean McKee:

@Michael J. I've had a very similar situation. Tenant was rough on unit, but would pay on time and paid for what she broke.  However it started to get worse a couple years in.  She started paying late(but still paid and communicated when she would pay) and started being a little more careless with unit.  I decided to renew because she had been on my property for a while. Then she lost her job. I had to pay her to leave and fix up the unit.   In hindsight I should have not renewed lease once she started paying late consistently.  As long she pays on time and fixes stuff that she breaks keep her.  But the first sign of trouble bail out.

In adding to this: If she is currently paying on time and repairing things as you said, I would keep her for the moment, but keep an eye on the situation, and prepare for the eventual change of tenant. Putting more money aside for future "make-ready," and repairs, as well as potential missed or late rent payments and court costs, etc. That way, you have time to prepare, while she is still paying.

Or, if the market is good in that area (either rental or sales) you can consider a change to a better situation. In other words, if it is a good rental market at the moment, now may be a good time to replace a problem tenant or property, with a better tenant, potentially more rent, or with a better performing property (or into a better area), with better potential. Obviously, this all depends on your specific situation.

I recently had a similar situation, where I decided it was a good time to reposition my asset, spurred on by an inconsistent tenant and a good market. So, I took advantage of the market conditions, relieved my tenant of her tenancy (my nice way of reframing it), and sold and exchanged into a better area with better potential. Now I have a better tenant and property, and a better future potential.

Good luck.

Hmmmmm....Ok, very interesting thread and responses. :/

A few nuggets, and others

......not so much :)

Anyway, Here's my educated response to the OP's question.

In general, the Appraiser should be taking into account recent neighborhood market trends (recent sales/comps, absorption, DOM, etc) and current trends (active listings, pendings, cancelleds, expireds, absorption, DOM, etc), and reconciling those trends with the specific Subject transaction.

The conclusions may contribute to positive adjustments to the comps, resulting in an appraised value higher than recent comps.

Simplified Example:

Subject contract price = $102k

Recent sales (same models-no adustments necessary)

Comp 1 - $95k COE (close of escrow) 6 mths

Comp 2 - $97,500k COE 3 mths

Comp 3 - $100k COE 1 mths

Comp 4 - $99k COE 3 mths

Appraiser determines recent market trends are appx 12%/yr or 1%/mth

Time adjusted SP's are:

Comp 1 - $102,820

Comp 2 - $101,400

Comp 3 - $101,000

Comp 4 - $101,970

The Appraiser may be justified in concluding a market value of $102k

That's one way.

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Another way is when a Buyer has the means and desire to pay the difference over the appraised value. Exp: SP = $102k, Appraisal = $100k, buyer pays $2k difference. Now, that sale becomes a new comp at a $102k sales price.

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That said, some Appraisers do not either, have the expertise to properly assess market trends, or spend the time required. or they may be lazy or busy or they may be accepting less compensation and don't feel they can afford to do the work required for a reliable conclusion.

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I might address other "opinions" from previous responses, in a separate post.

@Daryl Shackelford Hey Daryl, I have had rentals in the DFW area (Arlington, Mansfield, Grand Prairie areas) since 2007, and have a great Agent/Property Mgr. He has handled all my purchases, sales and property management since I bought my first rental there in 2007. I was lucky to find him. He has his contractor which has helped with a few rehabs for rent ready and for listing the houses for sale. He's a great a guy, very trustworthy and helpful. I first found him when he was helping other Californians and other investors buy and manage investment properties in 2007. he also has many investment rentals himself. PM me if you ant more info.

I've got a few ideas, but they may be a little too involved for your plans. Depending on how much reconfiguring you want to do. I kinda feel like the kitchen should be moved to where the dining room is (in the front) and then remove the wall open between the living room and dining (new kitchen). Then maybe move the wall between the dining/kitchen, toward the rear (where the current kitchen cabinets are), in order to expand the "new" kitchen a little, but still keep a separation for the rear room, which could be used as a dining room, small office, or possibly small bedroom. There may be enough room for a dining "area" in the kitchen or the top right corner of the living room. I think the service porch (laundry room) is kind of a waste of space for a small unit. You can make a washer/dryer closet to keep the amenity inside, but also free up some of the service porch for another use - possibly a small half bath for the new room, where the old kitchen was. I would definitely move the water heater outside if possible, maybe putting a tankless. that would gain space on the inside. You may also be able to reconfigure the bathroom with a shower in place of the tub and put a 2nd door between the living room, in order to give additional access, if you are able to squeeze another bedroom where the kitchen is. If it is a raised foundation and you have to do the plumbing anyway, all that reconfiguring is not as bad as it seems. The hardest part may be dealing with the windows (inside and out) in the current dining room, since they seem low and you may want to move them. Well, that's the full reconfigure version.

Otherwise, I agree with Nino, about widening the living/dining room wall, and removing the dining/kitchen wall. I would definitely see about relocating the water heater outside (tank or tankless) to gain interior space. And maybe even putting another walk-through or even a pass-through area at the upper right corner of the living room and kitchen.

That's some stuff to chew on.  Good luck!

Originally posted by @Todd Smith:

We will have to agree to disagree. I lived this very scenario. I could have sold the same property that  I refi the new day for 40% more if I broke the title into 2 single units like next door. I did not want  to sell the duplex. Splitting them would create 2 loans 2 tax bills 2 insurance policies all costing more than a single tax bill, insurance  policy, and 2 loan fees. Of course if I ever sell I will split them for this reason.

Todd, I don't think we disagree, it was just not clear what your situation was. I think I understand now. Based on what you are saying, your property is not worth 40% more, UNTIL you subdivide it into 2 separate properties. And it wouldn't make sense to compare your duplex to 2 individual sfrs or duplexes to determine a value. An appraiser would find other duplex sales in the neighborhood to compare yours to.

Originally posted by @Todd Smith:

I learned this the hard way. I can say without a doubt most real estate agents and loan officers are not even aware this rule. I had to call the State appraiser office and another loan officer that specializes in 2-4 unit small MF loans. Either they were all wrong or this is the rule. I am sure of my FMV was correct. The next door duplex( identical age/builder/design) that were retitled into 2 single units form 1 duplex sold at my stated FMV(40% higher) just 45 days before this loan. It was the best comp in the area, and they refused to use it; the outside consults stated it violated agency lending rules. The RE agent and loan officer I had were totally befuddled.

If I understand you correctly, you are saying the property next door was sold as a duplex and then the new owners subdivided into 2 single legal properties, possibly 2 sfr's or 2 condos. In that case, it is correct that you wouldn't use 2 single properties as one comp, in order to value a single property (duplex). But, it sounds as if there is a "highest and best use" issue. Maybe the property next door was more valuable as 2 single legal properties, but the zoning is different form your property, or there is some other reason yours can't be split.

But, something still doesn't sound right, if the property next door recently sold 45 days prior to your appraisal, and it is the same as yours (similar duplex, design, legally and otherwise, etc), then it it a good comp. If not, some info is missing here.